Condominium, homeowners (HOA), and townhome community associations occasionally rely on loans to fund significant capital improvements and property renovations. These loans can help associations undertake major community projects, such as:

  • Repairing roofs
  • Resurfacing parking lots
  • Replacing elevators
  • Upgrading clubhouses and swimming pools

Loans are an alternative to other funding methods, such as increasing regular assessments, imposing special assessments, or depleting reserve funds, all of which can place a financial burden on members or jeopardize the association’s financial stability.

While loans provide a practical solution for large-scale projects, they can come with evolving legal and regulatory considerations, such as the requirements under the Corporate Transparency Act (CTA).

What Is the Federal Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal law regulated by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. It was designed to combat financial crimes like money laundering, tax evasion, and fraud.

The CTA requires certain entities, including community associations that meet the specific criteria, to file a report with the Financial Crimes Enforcement Network (FinCEN). This report must include information about the association’s board members, “beneficial owners” with substantial control of the community.

For community associations through the United States, this means that board members may be required to disclose personal information, including:

  • Legal name
  • Date of birth
  • Residential addresses
  • Valid, government issues identification (ex. driver’s license, passport).

Non-compliance with the CTA can lead to significant penalties for board members including daily fines and imprisonment.


Navigating Community Association Loans and CTA Compliance

The Corporate Transparency Act adds a new layer of responsibility for association boards, particularly those applying for loans. Some banks and loan lenders now require associations to prove compliance with the CTA as a precondition for loan approval.

This means that boards must ensure they have filed the necessary reports with FinCEN and can provide documentation of compliance to lenders. Without this proof, associations may face delays or denial of financing for critical community projects.

To navigate these complexities, association boards should work closely with their association attorney. Legal counsel can help ensure the association complies with CTA requirements and properly files the Beneficial Ownership Information Report (BOIR).

Additionally, attorneys can guide boards on the procedural rules for securing a loan, including obtaining member approval if required by the association’s governing documents.


Legal Resource

Community associations considering loans for large-scale projects may need to address the legal implications of the Federal Corporate Transparency Act. By proactively working with their association’s attorney, board members can ensure compliance with the CTA, satisfy lender requirements, and responsibly manage the loan process. This diligence not only protects the association but also empowers the board to make informed financial decisions that benefit the entire community.

Do not hesitate to contact our law firm if your association has questions about the Federal Corporate Transparency Act (CTA), association loan procedures, reviewing/updating governing documents, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

 

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